ECONOMIC BRIEFS – 13.11.08
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More banks cut lending rates (BL 13.11.08)
UCO Bank has cut it prime lending rate by 75 basis points at 13.75 per cent, effective November 10. “We want to give an assurance to our customers that there is no liquidity problem,” said Mr V. K. Dhingra, Executive Director, UCO Bank. Andhra Bank has dropped the benchmark prime lending rate (BPLR) by 75 basis points. With this the rate has come down from the existing 14 per cent to 13.25 per cent, effective November 10. The change will benefit all loans linked to BPLR including loans given for housing, education and vehicles.
High credit offtake absorbs recent liquidity infusion (BL 13.11.08)
The effects of a reduction in the Cash Reserve Ratio (CRR) have evaporated as spreads between gilts and top grade corporate papers remained high, at over 700 basis points. One of the major factors behind the wide spreads was the tightening liquidity situation in the financial markets. The high spreads were evident from the difference between the 91-day Treasury bill cut-off yields and commercial paper. The Hindustan Construction Company Ltd, rated PR1 (High Safety) by rating agency CARE, placed its CP at 14.75 per cent or 740 basis points over Wednesday’s 91 day T-bill cut off yield of 7.35 per cent. Incremental credit-deposit ratios remained at over 90 per cent so far this year, with credit growing at an average of 30 per cent on a year-on-year basis. The high credit growth resulted in absorption of the Rs 2 lakh crore of liquidity injected into the banking system since the beginning of October this year. The liquidity tightening was also prompted by the massive exodus of FIIs. One of the major sectors drawing down credit was infrastructure, including oil companies, drawing on domestic credit lines since foreign credit lines remain choked.
Bond yields soften as market factors in rate cut (BL 13.11.08)
Debt market dealers are expecting cut in the reverse repo rate by 50 basis points. The rate cut, they feel, will prevent banks from resorting to the easy way of parking surplus funds with the central bank and start lending. This in turn, they expect, will ease the liquidity pressure in the banking system. Yield on the benchmark 10-year government security (the 8.24 per cent 2018 security) thawed by 12 basis points over last three trading sessions, closing at 7.60 per cent.
RBI aid puts mutual funds on recovery road (BL 13.11.08)
Almost one month after the RBI stepped in to help the mutual fund industry out of its liquidity problems, it does appear that they are on the road to recovery. RBI had for the first time on October 14 introduced a 14-day liquidity window to provide credit to mutual funds in need. This measure has greatly helped the mutual fund industry, which is now returning to normalcy as redemption pressure has eased considerably and inflows have started to come in, said Mr A.P. Kurian, Chairman, Association of Mutual Funds in India. The mutual fund industry has borrowed close to Rs 20,000 crore from RBI, out of which about Rs 9,000 crore has been paid back, said Mr Kurian. The announcement of the measures was made at the most appropriate time. Else there was a possibility of three or four fund houses going bankrupt, said Mr U.K. Sinha, Chairman & Managing Director, UTI Asset Management Company. The problem of the mutual fund industry was a mix of liquidity crunch and credit aversion. While the liquidity issues have been dealt with, the credit aversion is easing off slowly, said Mr Ramkumar K., Head-Fixed Income, Sundaram BNP Paribas Mutual.
Rupee falls sharply as FIIs sell in equity market (BL, BS 13.11.08)
The rupee fell by Rs 1.20 against the dollar, the sharpest single day fall in the recent past, on heavy dollar demand on Wednesday. Currency dealers said rupee came under pressure as FIIs sold heavily in the equity market. This coupled with dollar demand from oil companies and foreign banks looking to make arbitrage gains, drove the rupee down for the second consecutive day. The domestic currency opened weaker at 48.44 and fell further by around 90 paise to close at 49.30/32, as against the previous close of 48.10. There was sustained demand for the greenback from parties looking to book arbitrage profits due to the price differential, which is about 10-20 paise, in the spot and the non-deliverable forward (NDF) markets. The FIIs were net sellers in the cash market by Rs 735 crore while the domestic institutional investors were net buyers of shares worth Rs 215.5 crore. The Sensex dropped 303 points to close at 9,536 and the Nifty fell by 90 points to settle at 2,848.
Religare, Karur Vysya Bank in deal to provide equity trading services (BL 13.11.08)
Financial services firm Religare Enterprises, promoted by Mr Malvinder Singh of Ranbaxy, has announced a tie-up with Karur Vysya Bank, making available its equity trading services for the bank’s customers. The equity trading service will be available to the bank’s savings account customers. “This is an offline trading platform wherein Religare will map its own branch network with bank’s network to service its customers,” said Mr Shachindra Nath, Group Chief Operating Officer, Religare Enterprises. “This arrangement with Religare will provide the three-in-one facility of demat account, bank account and trading account to our customers,” said Mr P.T. Kuppuswamy, Managing Director and Chief Executive Director, Karur Vysya Bank. Religare has already has such tie-ups with IndusInd Bank, Tamilnad Mercantile Bank, Corporation Bank and Bank of Rajasthan.
Change of guard at SKS Micro (BL 13.11.08)
Mr Suresh Gurumani from Barclays Bank has been appointed as Chief Executive Officer (CEO) of SKS Microfinance. The development follows the decision of Dr Vikram Akula, Founder of SKS, to transition from the CEO role to a full-time Director on the board as of December 2008. In the new role, Dr Akula would focus on steering the future strategy of the company. SKS Microfinance received Rs 366-crore private equity funding from Boston-based Sandstone Capital, Kismet Capital and SVB India Partners recently. The total equity of SKS, after four rounds of investments stood at Rs 650 crore.
Market capitalisation to GDP ratio crosses 100% in 2007-08 (BL 13.11.08)
The market capitalisation to GDP ratio, an indicator of stock market development, shot up to more than 100 per cent in 2007-08 from as low as just over 20 per cent in 2002-03, said the SEBI annual report. The BSE market capitalisation to GDP ratio increased to 109 per cent in 2007-08 from 23.3 per cent in 2002-03. Similarly the NSE market capitalisation to GDP ratio increased from 21.9 per cent in 2002-03 to 103 per cent in the last fiscal. BSE and NSE were ranked 11th and 13th in the world in terms of market capitalisation at the end of March 2008, said the report. The market capitalisation of BSE increased by 44.9 per cent to Rs. 51.38 lakh crore in 2007-08 from Rs. 35.45lakh crore at the end of 2006-07. At NSE also, market capitalisation rose by 44.3 per cent to Rs. 48.58 lakh crore at the end of March 2008 from Rs. 33.67 lakh crore at the end of March 2007.
MCX-SX turnover higher than that on NSE (BL 13.11.08)
MCX-SX, the currency exchange floated by Financial Technologies and the Multi Commodity Exchange, has overtaken the currency derivative turnover on the National Stock Exchange. MCX-SX registered a total turnover of Rs 786 crore while NSE clocked Rs 707 crore. The open interest on MCX-SX was at 60,266 against 51,366 registered on Monday, with 164,119 contracts (85,316) traded. Banks accounted for over 25 per cent of the total volume at the exchange.
AP bank deposits up 20%, advances 33% in first half (BL 13.11.08)
The total deposits of the banking sector in Andhra Pradesh registered an increase of 20.12 per cent during the first half of the current financial year to Rs 1,82,708 crore as against Rs 1,52,101 crore during the corresponding period last year. The advances for the April-September period grew 33.35 per cent to Rs 1,83,629 crore (Rs 1,37,703 crore), according to the data presented at the State Level Bankers’ Committee (SLBC). The credit deposit ratio of the banking sector in the State during the period was 100.5 per cent (90.53 per cent) as against stipulated 60 per cent.
Industrial growth slips in Sept; but ‘encouraging’ (BL, BS 13.11.08)
A negative growth of 3.3 per cent in intermediate goods in September compared with 10 per cent in the corresponding period last year pulled down growth in the Index of Industrial Production (IIP) to 4.8 per cent in September 2008 as against 7 per cent in the same month last year. In contrast, the capital goods sector grew by 18.8 per cent and the consumer durables increased by 13.1 per cent. The Chief Statistician, Dr Pronab Sen, said that the negative growth in intermediate goods could be on account of manufacturers of final goods expecting a slowdown in the coming months, and running down their inventories of intermediates. The overall growth in the IIP for the April-September period stood at 4.9 per cent, almost half compared to 9.5 per cent growth recorded in the first half of last fiscal.
Motor insurance set to become dearer (BL 13.11.08)
Come January 2009, you may have to pay more for your car premium, though you will get wider coverage for the extra money you shell out. This follows the Insurance Regulatory and Development Authority (IRDA) allowing insurance companies to word the terms and conditions on the add-on covers and deductibles on their motor (own-damage) policies. Motor premiums have come down by nearly 40 per cent over last year, after the IRDA allowed insurance companies the freedom to price their policies. Now, insurance companies have been given the freedom to offer more features. For example, a policy may undertake to pay the full replacement value of a car component. But, the features will come with a cost.
Aviva Life ties up with Anagram (BL, BS 13.11.08)
Aviva Life Insurance has entered into a tie-up with Anagram Stockbroking Ltd for selling life insurance products. "The distribution tie up will ensure that Aviva's products are offered to Anagram's 1.5 lakh customers and further strengthen our presence in the country," said Mr T.R. Ramachandran, the newly appointed CEO and Managing Director of Aviva Life Insurance. Aviva Life Insurance, a joint venture between Dabur and Aviva, has over 40 bancassurance partnerships and more than 70 partnerships with corporate agencies and brokers.Around 55 per cent of the company's total premiums come from the bancassurance channel.
Kotak MF premium income up (BL 13.11.08)
Kotak Mahindra Old Mutual Life Insurance Ltd has registered a growth of 114 per cent in the first year premium income for the half year ended September 30. The company's total received premium income increased by 98 per cent Rs 925 crore. The company has reported a loss of Rs 35 crore, down from the Rs 53-crore loss reported in the first half of the previous fiscal. Kotak Life Insurance has also increased its sales force to about 40,000 life advisors.
ING reports first quarterly loss (BL, ET 13.11.08)
Dutch bank and insurance group ING, which received a massive cash injection from the Government last month, reported its first-ever quarterly loss on Wednesday, blaming the financial crisis. ING said it had suffered an underlying net loss of €585 million ($731 million) in the three months to September, compared with a net profit of €1.95 billion a year earlier. Net profit for the first nine months of the year stood at €2.9 million, compared with €6.7 million euros last year.
PSU banks may reduce rates for bulk deposits (BS, FE 13.11.08)
State-run banks might reduce their bulk deposit rates by 2-3 per cent in the near future following the finance ministry’s instruction to avoid excessive competition amongst them by offering aggressive rates to their customers. The decision, which has been convened to PSBs through their industry body - Indian Banks Association (IBA), was aimed at creating a level playing field for mid-sized public sector banks, a top banker said. At present, many banks are offering rates in the range of 11-13 per cent for their bulk deposits over Rs 1 crore to their corporate clients, which are much above the card rates. Finance Minister P Chidambaram had met state-run bank’s heads a few days ago to discuss possible reduction on both lending and deposit rates. He is also understood to have asked PSB chiefs to effect a general reduction in their bulk deposit rates.
ICICI to cut down timings of some branches to 9 hours (BS 13.11.08)
ICICI Bank will cut down on timing of some branch operations to nine hours from 12 hours earlier in an effort to improve productivity. From December 1, many of its branches will be open from 9 am to 6 pm rather than from 8 am to 8 pm. “We have been watching the customer traffic in our branches for the last two years. We realised that in some branches, it made sense to run from 9 am to 6 pm, some from 10 am to 6 pm and so on depending on customer traffic, location of the branch and the kind of branch like SMEs (small and medium enterprises),” said K Ramkumar, head of the human resource department, ICICI Bank. “Wherever the branch is not open eight-to-eight, we will create a hub branch within 2-3 km from that branch which will be open from eight-to-eight,” Ramkumar said.
LIC premium income falls 16% (BS 13.11.08)
Life Insurance Corporation of India (LIC), the country’s largest life insurer, has registered a 16 per cent fall in its new premium income in the April-September period to Rs 19,090 crore, data from Insurance Regulatory and Development Authority (Irda) showed. While the corresponding figure for the industry is a mere 4.3 per cent at Rs 34,590 crore in the period, for the private sector it is 49 per cent at Rs 15,500 crore. The market share of LIC is sharply down to 55 per cent from 68 per cent a year ago.
Weekly inflation data to go monthly (BS, FE 13.11.08)
India will switch over to monthly, instead of weekly, reporting of headline inflation numbers as captured by the wholesale price index (WPI) within the next few months, a finance ministry official has said. “We will persist with year-on-year calculation as most countries do the same. But we will also disseminate inflation data measured through alternative ways, including the 52-weeks’ average inflation, build up during the fiscal year, weekly and monthly build-up as well as data that discount seasonal variations,” the official added. A monthly inflation number is expected to be more accurate and in line with the practice in most developed countries.
PSBs report good results in 2nd quarter as loan books expand (ET 13.11.08)
An increase in the prime lending rate (PLR), focus on core deposits and a higher loan book growth has seen most PSU banks report robust sequential (quarter on quarter or QoQ) and year on year (YoY) growth in net profit and net interest margins. Analysts believe that loan growth buildup would continue to be strong with the recent 350 bps (3.5%) cut in CRR. A report by broking firm Motilal Oswal said a 38% growth in net interest income (NII) against an estimation of 25% has helped many banks report strong numbers in the second quarter ended September 30, 2008. “We expect the traction in fee-based income to remain strong. We remain positive on banks having strong liability franchise and low delinquency risks,” the report adds. Most of the banks have seen increased borrowings from Indian corporates as other modes of funding such as IPOs have all but dried up.
Cibil to launch loan scores, mortgage repositories (FE 13.11.08)
Arun Thukral, MD, Cibil said, “This proposed move is to enhance our product portfolio to offer holistic solutions to our member base in future. Going forward, the consumers will be able to access their credit reports, thereby creating a whole new culture of credit consciousness. Credit information sharing and consumer awareness will thus result in increased availability of credit, and banks and financial institutions will have a suite of advanced credit decision products for risk management.” Cibil has till-date recorded the credit history of around 8.5 crore individuals with a total data base of 12.5 crore records and also, a large number of corporates. The individual credit ratings have been assigned in the band of 300-900 points, in which the lowest point indicates a ‘bad or worse’ credit rating.
Interest rate ceilings on foreign currency loans may be hiked (FE 13.11.08)
The Centre is considering a proposal to increase the interest rate ceilings on foreign currency credit to exporters and ensure that banks provide more loans to exporters in the foreign currency of their choice. The move follows high volatility in foreign currency values against the Rupee resulting in exporters’ plans going haywire, resulting in increased demand for foreign currency credit by exporters. According to exporters, banks are unwilling to extend them credit in dollars or foreign currency of their choice despite directions of the Reserve Bank of India (RBI) under the pre- and post-shipment credit in foreign currency (PCFC) scheme.
State Bank of Pakistan raises its benchmark interest rate (FE 13.11.08)
Pakistan’s central bank increased its benchmark interest rate by 2 percentage points, the most in more than a decade, as the government seeks a loan from the International Monetary Fund to avoid defaulting on its debt. The State Bank of Pakistan raised the discount rate at which it lends to commercial banks to 15%, governor Shamshad Akhtar said.
Major rates & parameters as on 12.11.08 (BL, RBI)
Auction under RBI’s LAF
Govt. Securities (Yield)
8.24% 10-Yr 2018
8.28% 24 Yr- 2032
Rs 3,490 Cr
Rs 7,500 Cr
Rs 15 Cr
Source BL= Business Line, BS=Business Standard, ET=Economic Times & FE=Financial Express